Attorneys raise questions on Foodservice testimony

Witnesses might not link ex-CFO to fraud, they say

December 08, 2005|By BLOOMBERG NEWS

NEW YORK -- Attorneys for Michael Resnick, the former finance chief of Royal Ahold NV's U.S. unit accused of leading an $800 million fraud, say former executives who will testify against him told company lawyers that they weren't sure he knew of the scheme.

Resnick, who was chief financial officer of Columbia, Md.-based U.S. Foodservice, is slated to go on trial Feb. 27 on charges that he lied about earnings. Former colleagues who pleaded guilty in the case are cooperating with prosecutors and will testify against him and another defendant, former marketing manager Mark Kaiser.

Resnick's lawyers say newly obtained documents show that two cooperating witnesses - purchasing executive Timothy Lee and former Vice President William Carter - told the company's internal investigators in 2003 that they didn't know whether Resnick played a role in the fraud.

Defense lawyers may try to use the comments by Lee and Carter to clear Resnick of charges that he manipulated how the company accounted for promotional allowances - money food makers paid to U.S. Foodservice for promotions and prime shelf space.

Resnick was "not aware of activities undertaken by Lee, Kaiser and others in connection with the vendor confirmation process," said one of the documents, a March 24, 2003, report drafted by U.S. Foodservice lawyers, summarizing an interview with Lee soon after the scandal came to light.

"Carter also has no information to indicate that Mike Resnick (CFO) directly knew of the events in question," according to a March 18, 2003, document prepared by company lawyers. "Carter thinks that Resnick is pretty much a `straight shooter.'"

It's unclear whether Lee and Carter made similar comments to federal prosecutors or offered a different account of Resnick's role. Megan Gaffney, a spokeswoman for U.S. Attorney Michael Garcia, and Resnick's lawyer, Andrew Levander, declined to comment yesterday. Kaiser's lawyer, Richard Morvillo, did not return calls.

Lee also told internal investigators that he didn't think Jim Miller, the former chief executive officer of the unit, was aware of the fraud, the documents said. Miller is not charged in the case.

Meanwhile, Carter said Kaiser was much closer to decisions about promotional allowances.

"In Carter's view, Kaiser and Lee were intertwined in the whole process," said the summary of his comments.

Prosecutors say U.S. Foodservice overstated earnings by about $800 million from 2000 to 2003, using false promotional allowance, or PA, documents provided by vendors. Twelve people who worked for vendors pleaded guilty in the case.

Lawyers for Resnick and Kaiser made these summaries and another one public this week in a bid to force the government to surrender other documents that they say may help their clients. The defense lawyers noted the summaries to show that prosecutors might possess documents that will help prove their clients' innocence.

Royal Ahold, the Dutch owner of U.S. supermarket chains such as Giant Food and Stop & Shop, acknowledged in 2003 that it overstated its profit, mostly related to the fraud involving promotional allowances at U.S. Foodservice. The company settled with the Securities and Exchange Commission last year without paying a fine.

Ahold said last month that it will split U.S. Foodservice in two to revive profit growth. One unit will deliver food and cooking equipment to hospitals and schools. The other's focus will include fast-food chains.

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